Starting in July, following an executive order signed by Gov. Andrew Cuomo, The New York State Dept. of Health and at least a dozen other state agencies will cap employee salaries at $199,000. The order requires that providers, receiving more than $500,000 each year in state funding and at least 30 percent of their annual funding from the state, cap employee salaries at $199,000. The motivation for this regulation is to “protect the recipients of services” by insuring that non-profits are not being wasteful. (You can read the Executive Order Here: http://www.governor.ny.gov/executiveorder/38)
Looking more into this regulation, I realized the effect would not be a drastic as it sounded. Doug Sauer, CEO of the New York Council of Nonprofits, a trade association whose members will be subject to the rules said “The thing has been so gerrymandered that the big providers have gotten the outs that they’re looking for and won’t feel an impact.” If the additional revisions didn’t provide that “out”, there is one last safety valve- a state-approved waiver. Some are even hopeful that the regulation may prove that most all non-profits pay their employees correctly.
For those that will be affected, what are the implications of this regulation? In general, most agencies that will feel the effect of Executive Order 38, are those in the health care field. With the new & changing health care environment, executive positions are increasingly more demanding & agencies are working harder at providing competitive packages to retain and attract experienced, skillful employees. Taking away a competitive salary means that agencies may lose out on hiring or retaining the ideal candidate, which ultimately hurts the public.
I want to pause here and insert my own personal opinion. I honestly believe no person needs to make $4 million… whether it is Herbert Pardes, executive vice chairman of New York Presbyterian, who was paid that amount in 2011, or a CEO of a Private Sector company. Does anyone really need that kind of money? Sure, it would allow you to have a second (or third) home, or send all of your kids to elite colleges, or even buy your own island (this is an actual thing… islands are for sale for around $1 million and up), but no one really needs any of those things. So I say recognizing the wasteful spending habits of organizations on lavish salaries, bonuses, and perks is a step in the right direction. However, solely focusing on non-profit executives has some nasty repercussions and underlying implications for the non-profit job market and the future of United States Social Services. In my opinion, based on some basic knowledge of economic theory, limiting salaries would mean:
1. Less people applying for non-profit jobs- everyone has cut off for a salary they would accept, capping salaries for executives in non-profits means losing a portion of the applicant pool, less applicants means less opportunity to hire the ideal employee (we will assume in this case that the ideal employee cares about money).
2. It emphasizes private sector jobs- In a society that correlates your value to society with the wages you make, many people often choose a job or career that will be most financially rewarding. I am not saying that everyone chooses a career just for the money, but realistically it is big a factor. If private sector jobs are the jobs that pay the most, then we are discouraging people from choosing jobs that benefit the public good. And in turn, we are saying that we value the work done through the private sector over the public sector.
3. It is just plain hypocritical- If the point is to decrease waste, why do we allow .0001% of America (400 people) control $1.7 trillion dollars. (Forbes top 400) I mean seriously, how can you say that is not wasteful? Furthermore, take the theory of “trickle down economics,” Reagan asserted that tax breaks to the rich would allow them to “create jobs” and give money back, meaning more money at the top results in more opportunity for the bottom. Or Kuznet’s Curve which establishes that as national income increases, inequality increases & then decreases, implying that the richer we become the less inequality would exist. Both of these theories support modern ideals of free market exchanges between employer and employee. They are based on (whether true or not) the fact that wealth and wealthy people are good for the economy because they give back. Isn’t it fair to assume those who run public service organizations are likely to give back much of their wealth, in the same way Bill Gates and other wealthy people do? So why are we robbing them of that opportunity?
Opposing View Point:There are a few great points to consider that are in opposition to my initial argument, to try to give a rounded summary of the Executive Order, I thought I would add an opposing view point. More than $200,000 is a large amount of money, more than most people need. While a higher salary may allow better talent, there isn't really a proven correlation between salary and talent. Furthermore, the government & public shouldn't be funding a "guess and check" with our tax dollars, ie. someone may look great on paper and ask for more money, but will they do more good than someone willing to accept $199,000. While there are executives in the private sector making more money than they should, there is a qualitative difference, because non-profits are tax-exempt and therefore they owe a debt to the public and should be held accountable. The boards that should be enforcing regulations and holding non-profit executives accountable, sometimes do not, and they are not public representatives, but rather are chosen by those within the organization.
All in all, my overall assessment of this Executive Order, is that (thankfully, in my opinion) it won’t have too much of an actual effect on many of the non-profit organizations it was aimed at. If there is an issue of corrupt spending, reining in excess and enforcing regulations is still unaddressed by Executive Order 38. However, I wonder what future regulations Executive Order 38 is a precursor to, and what this means for the non-profit sector in years to come.
